Oversupply to dampen recovery in residential market
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BIS Oxford Economics’ latest outlook series report has delivered a stark analysis of expected demand for new houses and land across the Perth market in the near future.
The industry analyst and economic forecaster’s ‘Outlook for Residential Land 2017 to 2022’ report found that lot production in Perth fell to 7,100 in 2016-17, a cumulative 55 per cent decline from 2014-15 levels, and that median land and house prices had also declined over this period.
The state of the Perth market, it said, was largely a result of the retreat of mining-related investment, which had negatively affected the economy and employment in Western Australia.
The Perth market had struggled to absorb this change or broaden its economic base, the report said.
Another factor affecting the sector was WA’s net interstate migration, which had moved from a net inflow of 11,400 people in 2011-12, to an estimated net outflow of 11,500 in 2016-17.
Net overseas migration also fell, from a net inflow of 53,200 people (2011-12) to 14,000 during the 2016-17 period.
The report said demand for new houses had consequently slumped, affecting the land market.
Average annual lot production actual and predicted. Source: Bis Oxford Economics.
Bis Oxford Economics senior manager and report series author, Angie Zigomanis, said demand for land in both Adelaide and Perth had been weakening and would continue to soften.
“The Perth economy is struggling through the mining downturn, which has supressed dwelling demand at a time when dwelling completions have ramped up,” Mr Zigomanis said.
“This has led to a considerable oversupply of dwellings, which is likely to persist through to 2021-22 and dampen any recovery in residential markets after mining investment bottoms out and the state economy improves.
“Overall, the Perth market is expected to remain weak for some time.”
Meanwhile, residential lot production in Sydney, Melbourne and south-east Queensland was sitting around its peak in the cycle, and would begin to fall away, Mr Zigomanis suggested.
He said the forecast downturns in the eastern centres were likely to be moderate.
New supply in these markets had been more pronounced in the unit and apartment sector, Mr Zigomanis said, with markets continuing to experience a deficiency of detached house stock that would likely continue to underpin demand.
The report estimated Sydney to have recorded its highest level of residential land production over 2016-17, and although lot production peaked in Melbourne in 2014-15, it had remained close to this peak.
Similarly, the Brisbane, Gold Coast and Sunshine Coast markets had experienced a moderate upturn since 2013-14 after an extended period of weakness.
“Steady prices growth in houses in the initial stages of the housing construction upturn improved land price affordability and shifted some demand from the established house market, to the new house and land market,” Mr Zigomanis said.
“This not only encouraged a greater percentage of home purchasers to opt for a new house over an established one, but also established house owners to sell up and upgrade to a new larger house.”
The report concluded that the downturn in new dwelling supply across the board would eventually lead to the re-emergence of a shortage of stock in most markets. Together with an expected acceleration in economic growth by the turn of the decade, it said this would underpin rising demand through the next cycle.